This guest post from Heather is part of the “reader stories” feature at Get Rich Slowly. Some stories contain general advice; others are examples of how a GRS reader achieved financial success — or failure. These stories feature folks from all levels of financial maturity and with all sorts of incomes. Besides teaching elementary band and running a personal training business, Heather keeps a healthy-living blog called Change Is Possible, plays trombone in a local community band, and dances whenever possible, whether there’s music playing or not.

Ours is not a story of paying off tens of thousands of dollars in a short amount of time, but it is a story of saving money and debt reduction.

My husband and I have been married for five years, and in that time, we’ve tried numerous budgeting techniques — to no avail. All failed for various reasons. We knew what we were spending. We weren’t spending more than we were earning, but we weren’t saving much, either. Something always “came up.” Paying off things like the mortgage or my student loan weren’t even on the radar. Those are just normal part-of-life payments, right?

We’re both teachers, are paid only in the months that we work (early August through late May), and don’t take regular summer jobs (though one or both of us will occasionally pick up a gig here or there). We have an automatic deduction set up from his paycheck so a chunk of each pay goes straight to the credit union — where we have no other accounts — for us to live on from the last paycheck in May until the first paycheck in August. We never see it except on monthly statements, and have never been tempted to touch it until needed.

Separately, we have an emergency fund. We don’t fund it often, but it contains a fair amount of money for the just-in-case. Again, we’re good about not spending it except in case of an emergency. The only emergency we’ve had so far was my cancer diagnosis three years ago and the subsequent six-month absence from work.

Our budgeting plan at that time was fairly simple: We totaled our monthly paychecks and divided the money among our budget categories, including our monthly bills (mortgage, car payment, student loan, utilities, etc. — we didn’t/don’t have credit card debt) and other expense categories (transportation, groceries, entertainment, etc.). We tracked it all in an Excel spreadsheet.

Money for nothing
A couple of years ago, my husband bought his first-ever new car, a Scion XB. He researched and determined that they were holding their value really well — he couldn’t find one used for much less than one new, and he wasn’t interested in one that was tricked out. The ’90 Bonneville was donated (bad transmission); we made a little down payment, and added a car payment to our monthly bills. (My car was bought in cash before we were married.)

Over Thanksgiving weekend 2009, we were reviewing our finances and for some reason, we took a look from a different angle. We subtracted only our monthly bills (mortgage, etc. — not groceries, gas, etc.) from our total monthly income, and were shocked by how much we had been spending on everything else. What were we spending all of that money on?! We’d never calculated how much money we spent beyond the bills. We were especially surprised because neither of us is a big spender or shopper, so how were we blowing through the cash so fast?

Solving the problem
We came up with a new plan to correct the problem. We took the money that remained after our monthly bills were paid and divided it by four, which gave us roughly a weekly total. We took that weekly total and cut it in half:

The larger expenses — house repairs, deductible payments, insurance payments and the like — would be paid out of the other half. This was typically things that cost more than $50.

The monthly spreadsheet would account for the cash in one lump sum (not accounting for where it was spent), plus itemize other money spent. Cash came out on Sundays just before grocery shopping. What was left was stored tucked in an envelope so we could both take as needed. Our newest attempt to budget began.

The weekly cash plan worked well; over time, $250 turned into $240, $220, and eventually stabilized at $200. Other expenses were easily taken care of, and our savings account grew. We didn’t feel pinched or deprived. When unexpected expenses popped up (e.g., surgery for kidney stones), there was money in the bank to cover it without touching the emergency fund. Without thinking, we were saving over half of what we’d been spending before.

Accidental savers
Cue summer 2010. We sat down to look at upcoming expenses:

We were taking a vacation.

I was starting a personal training business and needed to buy a defibrillator.

He needed a summer class for seat hours to maintain his certification.

Car insurance was due.

Plus all the usual suspects.

We added it all up, looked at what was in the bank, and blinked in disbelief. We added it all up again and brainstormed for the details we certainly must have missed. Nope — everything was accounted for.

We had enough money in the bank to live throughout the summer (including vacation, the AED, the class, etc.) without touching the credit union account. And there was enough money in the credit union account to pay off the car. In June, 2010, just six months after embarking on the new budgeting plan, we paid off the Scion XB, two years ahead of schedule.

This school year hasn’t seen the same saving/debt reduction, as my teaching position was reduced to half-time. While my paycheck is cut in half, this gives me the opportunity to spend more time trying to build my training business, which will replace (and hopefully exceed!) the lost teaching wages. (By the end of this school year, if all goes according to plan…)

If we hadn’t had this new budgeting plan in place, my salary reduction would have been a disaster, partially because we wouldn’t really know where best to cut, and partially because we’d still be accounting for a car payment every month.

The plan suits us both and has been easy to use. I’m excited for the possibilities of what’s to come.

Reminder: This is a story from one of your fellow readers. Please be nice. After more than a decade of blogging, I have a thick skin, but it can be scary to put your story out in public for the first time. Remember that this guest author isn’t a professional writer, and is just learning about money like you are. Henceforth, unduly nasty comments on readers stories will be removed or edited.

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I wish both halves of that “beyond bills” category had not included, “etc.” How are we to know what was in what half?

Major fault in an otherwise excellent piece. But major enough to make this unusable. If all has an “etc.” what good is it?

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Laura in Cancun

Great story! We also plan all our expenses (minus rent, groceries and utilities) around a weekly “allowance”. Between the two of us, we only spend $130 a week on transportation, lunch, going out, etc. It’s been a huge help, and we save about 30% of my income, plus 100% of my husband’s income.

Glad to know it’s working for someone else!

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DavidK

I love this! I have been tracking calories with a food log and at the end of each day, I know if I can have seconds on dinner or have dessert. Using the envelopes for the “extra” expenses, I will know if I can afford a soda or appetizer at dinner or a tank of gas to go to the mountains… Thank you for sharing!

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AMANDA

@31 that’s my problem too! I never overspend in my grocery or gas categories but it couldn’t hurt to spend less. Sometimes at the grocery store I’ll pick up something small that we could live without and buy it anyway because I don’t SEE the money going out. My reward for CONTEMPLATING each purchase will be eating out at the end of the week!

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Janet

That’s awesome that you proactively learned to live on less before the pay cut. It is eye-opening to see where your money goes. I make sure to track my expenses every couple weeks so I have a better grasp on spending.

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Kevin M

We have 2011 resolution – a weekly goal for non-billed spending (groceries, gas, trips to Target, etc) on our credit card, but we’ve been thinking about switching to cash to make sure we don’t exceed our ceiling. If we go over our limit this month, we may consider this method. Thanks for sharing.

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john

What a great Blog Entry. It makes more sense than some of those complex budget recommendations. I set up a budget with my nine year old son last night using this style. It was simple and honest.

Congrats on the success. I hope we do as well!!

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amber

This weekend I had ‘the talk’ with myself (since I live alone) and realized I am in the exact same situation as you were at the beginning of the post. $ coming in IS greater than $ going out, but scarily, not by nearly as much as I thought. I have a lot saved from last year’s income so I never realized how much was slipping away on essentially nothing. I have yet to implement ‘the solution’ but am willing to give this a try. The only loss is you don’t get all those great reward points from your credit card! (oh but I always pay off in full and never thought of myself as a big spender – but I guess I am guilty!)

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Dana @ Budget Dietitian

Heather-
I LOVE this style of budgeting. So simple and effective. My hubby and I may have to give it a try. We have been doing good on a cash envelope budget (with all the different catagories) but it is stressful to manage!

Congrats on the car and the personal training business!

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MutantSuperModel

Happy for the clarifications in the post. Congrats regardless!

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Carrie Black Funk

This is my first time posting on a post here but it is such a perfect post for me! We have been doing the envelope system for awhile now and we just suck at it. 🙂 For some categories I am really good at keeping on top of it and others not so much.

I am going to try this system and see how it goes for us. I can’t wait to try something new with our money in hopes that we can actually save some money.

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Lulu

Awesome! I have always maintained that whether we realize it or not, we spend less money when we actually have to hand over the cash and not just swipe the card.

However, personally I am always fighting my desire to switch to cash this way because I love accounting for every penny. Even if I set aside a weekly cash allowance of $100 for food, entertainment, drugstore purchases, etc. part of me is bummed that cash purchasing makes it almost impossible to track exactly how much I spend on food vs. movie tickets.

I guess you can’t have everything…

Congrats and good luck with your business.

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TS

I’ve been using a system that maybe complicated to others but work for me and my peace of mind: When the take home pay comes in all the money (only a number in the bank, not actual cash) is there for us to utilize. However, I don’t allow that to happen. I set up the 1)savings category that includes the emergency fund, home maintenance fund, vacation/gift fund. 2)Housing and utilities category that includes the mortgage , extra mortgage, all the utilities. 3)Living category that includes groceries, eat-out fund, gas expenses, ‘blow money’, and the regular daily expenses, etc… each category has its maximum limit. When all the numbers in these 3 categories are added up, they are smaller than the take home pay.

In other words, we already have a built-in saving (take home pay minus all expenses.)in the beginning of each month.

I ‘pay in’the emergency fund, home maintenance fund, and vacation fund as if they are expenses, but in fact they are extra savings. This past year there were some home repairs that needed done. The expense came out from the home maintenance fund. We also went to Texas for our niece’s wedding. The vacation/gift fund came in handy. If it weren’t for these accounts I would be so nervous about the extra expenses.

It takes planning and patience to see the result. I’m glad to know there are so many savers out there like me.

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Heather

Very cool! We also have a simple, cash budget, and I always thought it was because I wasn’t sophisticated enough or “grown up” enough because we don’t own a house yet, etc. But to see so many people who do something simple is quite a relief – we’re not doing it “wrong”! And to have all your “around town” money in cash really is an eye-opener for how much you’re spending, even if you think you already know how much you spend.

I like making it a game to see how much I can have left in the envelope at the end of the next week, and then that money is saved for larger/unpredictable purchases like furniture or a great garage sale deal, or doctors copay (with two kids we could have a lot of that all at once) – so it kind of functions as a preliminary layer of our emergency fund or an emergency fund for non-emergencies.

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DreamChaser57

Count me in among the ones who were confused after I initially read the post – thanks to both Heather (original poster) and Tyler (Poster #17) for the clarification. Congrats to Heather and her hubby on a job well done! What I find most intriguing about this story is that you guys did not pre-determine a goal; you just found a way to be more intentional, conscious, and disciplined.
We have started some variation of this -Entertainment & Leisure and Take Out have long been our budget busters. Inspired by the Til Debt Do Us Part show, this year we decided to withdraw the cash for those two budget categories on a bi-weekly basis. I felt so disheartened after looking at our quarterly/annual spending totals to feel that we are frittering away our retirement and security on cups of hot chocolate and quick dinner. Take Out is a problem that keeps on giving-because we are eating out groceries eventually spoil equaling more wasted money, and it is rarely as healthy as home cooked meals.

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AMANDA

I’m going to try this!

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Deirdre

Heather, thank you so much for the clarification! It does help, indeed. And I so appreciated the fast response.

I can see how keeping $ out of your wallet would help…but I also see potential for my husband & I to compete over the remains in the envelope. I’ve liked having gas/food budgeted so that what is left after savings is divided and a non-issue.

We’ve tried the meticulous route—it can’t hurt to give this one a try for a couple months. Thanks for the inspiration.

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Heather

@Deidre: (I didn’t see your comment earlier.) We didn’t see how much we were spending total, because we never added up all of the discretionary categories. I don’t remember what they all were, but for sake of example, we had previously looked at gas, groceries, entertainment, eating out, clothes, medical copays, prescriptions, dog stuff as separate categories. Looking at them as one large category instead was the eye-opener.

Where was the money going? Honestly, I don’t really know. Here and there? This is what I can tell you: if we get to Saturday and there’s no money in the envelope, we don’t eat out. I wanted a new pair of jeans (I only had one pair and it had worn out — but jeans are a want, not a need), so I waited until we got to the end of a week and had $40 left over (with which I got two pair of jeans and hubby got some new underwear). But in the old budget, I might have gotten another pair of pants and some socks, and hubby might have gotten a few shirts, which would double or triple that day’s spending.

As far as groceries: we plan all of our meals for the week on Sunday, then go grocery shopping. This is the same day that money comes out of the ATM, so we always have food. Typically, we also end up getting gas early in the week as well. We chose Sunday on purpose for money withdrawal so that we would not be strapped for food, and so that if we had $60 or $80 left on Friday night, we could spend it (if we so chose) on dinner or entertainment or whatever and not be worried that we were going to need it for something else later in the week. (Sometimes we just roll it into the next week; sometimes we buy things we don’t usually need like dog food or a car wash or something.)

Does that help?

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Mary

I’ve recently starting doing the same thing. And I’m actually experiencing budgetary success for the first time. I used to divide everything into a million little categories and it never worked. So far, this is working. Thanks for the timely post!

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mike crosby

Hi Heather, I’m also a little confused about what you and your husband did too. But don’t try re-explaining to me, there’s a lot I get confused about.

It is interesting though that you just did a different way of accounting for your spent funds and you ended up with all this extra money. That’s a good thing.

Congratulations.

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Tina

That’s pretty cool. I loved that you kept tweaking your approach until you found a successful method that meshed with your life.

I’m intrigued by such a simple budgeting plan. I’m a “write down every penny” type but I haven’t had success in bringing down my discretionary spending with that system. I think I will give this a try! I’m just curious about what others think about including savings as a monthly bill. I think I’d have to do it that way to make sure I actually save money, but what would you do?

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chacha1

A nice, concise illustration of how paying a little more attention can really pay off financially, and why tracking your spending can make a big difference in building financial freedom.

For me, definitely, keeping money out of my wallet is of key importance! 😉

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Heather

Story-writer here 🙂

@retirebyforty: we both have 457s that are deducted from our checks before we see it, so retirement savings happen before we even see income.

@Tyler: yes, that’s what happened. My checks are direct deposited into our checking account and his are direct deposited into our savings account, so over time, when I was paying bills, I needed to transfer less from savings into checking to pay the bills. And then “magically” in the end of May, there was enough money there to pay off the car and leave a bit in there.

You started putting the other half of the $2000 into a savings account (which previously, had just been grouped in with the first half, to be spent at will).

Over time you adjusted to $800/month in spending money and $1200 in savings.

After a while, your savings account was big and you paid off your car.

That’s how it worked, right? It’s not real clear in the article where this “savings” money is actually going.

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Deirdre

It’s refreshing to hear a story more similar to our own, where it doesn’t begin with great debt or financial immaturity. We have no debt beyond our mortgage, and like you describe, have tried numerous ways of budgeting to try to save more.
I didn’t completely understand the switch though. If you were tracking expenses with excell for all catagories as well as monthly bills, how would you not see how much you were spending? With neither of you being big spenders, where was it going? What was cut back on that suddenly you were saving so much?
I’m curious because I’d like to try it, but I’m wary of us spending “from the envelope” money—say, on a movie, that really was needed for groceries. Any clarification would be great. Thanks!

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Golfing Girl

Although your explaination was a bit confusing (not sure how I would implement what you described), I applaud your accomplishments and your will to overcome adversity. It sounds like your planning has reduced the amount of stress in your life tenfold, which will help your health and marriage thrive. Well done, God Bless, and good luck to you.

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AC

This was a great read. I always write down my bills, amts, and when they are due right next to my monthly income. I don’t think I ever subtracted the two to see the disposable income. What a creative solution to find “hidden money.”

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Karen

What a great surprise that turned out to be!

A few months ago I found myself looking at my budget that way too. I had helped my 20 year old son to make a spreadsheet budget like mine, and he added a line for “Disposable so far unspent”. I had had a previous category for “Unallocated”, but all that encouraged me to do was allocate everything so I could spend it.

I too was astonished to find out how much “disposable” income I had every month (groceries, pet care, clothing, entertainment, etc.). Maybe I’ll try your new system of taking out cash for half of that amount, and see if it helps my savings too!

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Andy Hough

Good job. When one way doesn’t work it is smart to try a slightly different angle until you get the results you want.

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brooklynchick

wow! That’s amazing! Congrats!

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Kim

This system is almost to-the-letter the one we have employed for years now. It makes sense for us and we are able to save 25% of our gross income and live debt-free.

Good luck with your business!

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Craig

Excellent post. I have never had success with the multiple category approach to budgeting. We have only 3 categories: a required monthly payment category, an everything else category with a set amount of cash to cover it, and a savings category for what is left over. A three category budget seems so much easier to stick with!
Since we are savers, we spend based on comfort and NOT paycheck amount, so what is left over for savings has typically equaled the total of the first two categories for the past couple of years. Now that I am about to lose my job the only change will be no third category of savings and the first two will come from the emergency fund until another job comes along. Simple budget for good times and bad.
Thanks for sharing!

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retirebyforty

Congratulation on the XB. That’s a cool car.
Don’t forget to save for retirement too!

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dotCOMreport

I am with Jack the Red on this; cold turkey usually causes shock and makes it difficult for budgeting to stick.

Congratulations on starting the journey to an additional income!

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David Hunter

You’re on the right track! Now, budgeting every year will get easier and easier, but you just have to make sure you stick with it.
.

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Nicole

Congratulations!

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Everyday Tips

I think it is great that you and your husband identified this issue, and came up with a plan of attack together. So often, couples are at odds when it comes to spending, and I bet being on the same page also contributed to the great success you have had with your new plan.

I bet you feel fantastic with the results of your budgeting plan. Think about it, you have gained real assets in the process- car, AED, etc. Had you not done this exercise, you may have just ended up with a stomach full of restaurant food and such and nothing ‘real’ to show for the money you spent.

Great job!

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MikeTheRed

Love the story of “accidental” success. This is proof that turning your finances around isn’t nearly as hard as so many people think. It just takes a little bit of thought, and a reasonable plan that you can stick to.

I think people often try to go “cold turkey” with budgeting, going from no budget to trying to itemize and track every penny overnight and the shock is so much that it just doesn’t stick. This (and many other stories) show that you don’t have to be perfect with your budgeting to see some serious benefits.

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LifeAndMyFinances

Very creative solution for your budget! I often write about various solutions on my website too. Some people do better with a lump sum of “expense” money rather than dividing their money into a million categories on their budget.

Really, if something works for you, stick with it. Congrats on paying off the car, and good luck on your business! 🙂

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Dixie Redmond

This is helpful to read. It shows how you will spend what you have in your pocket, doesn’t it? Good for you for reducing what was in your pocket!

I have no idea what kind of car that is…but cars and houses seem to be budget hogs. And so are kids.

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